The Dow Rose 228 Points Because China Is Playing Santa Claus

Looking Up. All three major U.S. stock indexes rose on Wednesday after China announced plans to exempt certain U.S. products from its retaliatory tariffs. The country has also made a series of other efforts to stimulate its weakening economy, although the effect remains to be seen. More cuts in the interest rate are well anticipated ahead of the September meeting of the European Central Bank and the Federal Reserve. In today’s After the Bell, we...

watch the latest moves from Beijing to ease the impact of trade war;

wonder whether the stimulating measures will work;

and explain why oil prices were under pressure today.

Signs of Hope

Stocks closed with solid gains on Wednesday as China indicated some willingness to compromise in the trade war with the U.S. The
Dow Jones Industrial Average
added 227.61 points, or 0.85%, to close at 27,137.04. The
S&P 500
gained 21.54 points, or 0.72%, to finish at 3000.93, and the
Nasdaq Composite
rose 85.52 points, or 1.06%, to close at 8169.68.

Investors focus was again on China today. Beijing published a short list on Wednesday that will exempt some American products from its retaliatory tariffs. Cancer drugs, lubricants, pesticides, and a number of other products are on the list, but big-ticket items such as soybeans, corn, pork and other agricultural goods aren’t.

Editor's Choice

The new loans issued in China reached 1.21 trillion yuan in August, up 15% from the previous month. The new data suggest that “timing rather than a change in trend was responsible for the surprisingly poor readings last month,” wrote Michael Shaoul of Marketfield Asset Management on Wednesday.

“August’s report combined steady loan activity with robust bond issuance (both corporate and local government) while the drawdown in shadow banking activity continued it did so at a moderate pace,” wrote Shaoul, “Overall this is consistent with People’s Bank of China policy that has shifted overall to a moderately easy stance but has sought to direct credit to particular portions of the economy and restrict issuance to regulated portions of the financial system.”

In an effort to bolster the economy amid negative trade impact and sluggish domestic demand, Beijing announced last week that it would cut the amount of cash banks must keep on reserve. State-owned newspaper Economic Information Daily reported today that many government bodies are intensively deploying new measures to encourage more lending to manufacturers and small businesses.

China’s foreign-exchange regulator also announced on Tuesday that it will scrap the restrictions for two foreign-investor investment schemes in a bid to open up the Chinese financial market and attract more foreign funds. Still, the Shanghai Composite fell on Wednesday as the move was interpreted as “a sign of desperation” amid mounting financial difficulties and an increased need for cash amid rising outflow pressure, according to Ipek Ozkardeskaya, senior market analyst at London Capital Group.

“On the other hand, it is unsure that the lifted quotas would have any positive impact on foreign capital inflows, given that the $300 billion quota in place has been used up to a third only,” Ozkardeskaya wrote on Wednesday, “International investors have an increasingly cautious approach to Chinese assets.”

Elsewhere, oil prices were under pressure on Wednesday after President Donald Trump fired hard-line National Security Advisor John Bolton a day earlier. The move has revived bets of lower tensions in the Middle East. Trump has discussed about easing sanctions on Iran in order to help restart the negotiation with Iranian President Hassan Rouhani later this month, according to a report.

Investors now fear that less dispute in the region would increase supply and weigh on global oil prices. Ahead of Thursday’s meeting of the Organization of the Petroleum Exporting Countries in Abu Dhabi, the front-month futures for Brent crude dropped 2.52% to trade at $60.81 per barrel on Wednesday.

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